WatchLets open the flood gate!!!
http://www.latimes.com/business/money/la-fi-mo-foreclosure-auction-20121102,0,1900684.story
"The Santa Monica real estate investment firm won an auction by the federal government to purchase 970 foreclosed homes in California, Arizona and Nevada from mortgage titan Fannie Mae for $176 million.
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The bulk foreclosure sale is a pilot program by the Federal Housing Finance Agency, which oversees Fannie and sister company Freddie Mac. The program is intended to help clear the large numbers of foreclosed homes on the books of the two mortgage giants without crashing the housing market's recovery. Investors who purchase the homes will rent the properties out."
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Oakland, CA
something similar happened in the 90's after the S&L crash.
large investors got sweetheart deals on bulk purchases of REO and then all of a sudden prices started to go up again.
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Simi Valley, CA
individual investors will face heavy competitions from investment firms and eventually cash out.
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Oakland, CA
Mark D says
and once the firms control the entire market they can name their own price.
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47 male
Lafayette, CA
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970 new rentals in California is not going to change the rental picture one micron. According to Wiki, California has 482 municipalities.
Assuming a 100% rental rate and 100% of them were in California, that's 2 homes for every city and town.
Assuming they sold 970 new homes in bulk every single month, or well over 10,000 per year, that's 2 new rentals per month per city and town in California.
The belief that Freddie and Fannie shadow income will crash the housing market is futile and not credible.
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Scottsdale, AZ
robertoaribas's website
Phoenix rented 4080 homes off the mls in the past 30 days... the effect of 970 new ones here at one time would be over in 30 days... (and that's if all of them were here, given that California has 6 times more people than Arizona... well you get the picture!)
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Scottsdale, AZ
robertoaribas's website
Also, while we are at it: 176,000,000 / 970 = 181,443. I am in contract to buy my most expensive rental home so far of the entire soon to be 14 of them, and it is under $150,000. Till now, the most I have spent on a rental purchase is $87,000. (not counting converting my former primary residence into a rental... but that is entirely different)
So, I'd be really curious to see the mix of properties they are buying, and if they even seem to make sense!
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robertoaribas says
I thought that most of the properties there were fairly new. Why the high conversion costs?
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Scottsdale, AZ
robertoaribas's website
upisdown says
i have no idea what you are trying to say...
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robertoaribas says
That's a high buy-in price for a rental, to me. But I don't know your market and the market rental rates either.
robertoaribas says
That amount, do you have to do anything to the property to make it rentable? Is that a low price, or mid, high?
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Scottsdale, AZ
robertoaribas's website
upisdown:
yes, the $150K buy is a high price... here is what I'm thinking with it:
1. It is a 3000 square foot single level home with a 3 car garage and a pool. Also, ALL flooring is nice tile, which is generally where you run up expenses as a landlord, changing carpet.
2. It is not the best rental. I think it will rent for $1300 a month, which is not nearly as good as anything else I'm buying... But good enough to get by.
3. No way in hell any builder ever builds anything even close to competitive in price to this, ever.
4. In the entire Phoenix mls which stretches even out of the county, if I search 2800 ft^2 and greater, 3 car garage, pool, I get: 16 under 200K, almost all of which are two stories... and way out in the boonies! the one I'm buying in in a soso part of town, but only 5 miles from downtown.
So, this is a more speculative purchase. Once the foreclosures end, give the market a year or so to rise, it should honestly be more like $250k even in a normal market. I can wait...
It needs about $10k of rehab right now too, so factor that in.
The $87K is lower price because it is a terrible looking short sale; but mostly it is just dirty, I think I can even clean the carpets and keep them, wash the walls, haul off the trash, etc... It should rent for $1000 a month, similar homes that are cleaner sell for $115k and up.
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I was trying to get a feel for your market and the types of house available. I have this image or thought that most of the available house out there are fairly new. Not a bad number ratio, but it sounds as things are moving along there finally.
We buy and do a full structural rehab, but the houses are 50-60 years old and dirt cheap, and most importantly in the right public school district with two very good private schools within a couple of miles, one catholic, and the other non-religous. We like to put value into the property and then recoup some of the tenants savings in a higher rent structure, which is right at your rates. Basically it depends on the size and layout of the house because of the mechanicals.
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Los Angeles, CA
This is another of those threads where people need to quantify what area they are speaking of.
In my micro market(downtown LA), two new buildings opening at once..will do the following:
-Set their initial rents at about $250-300/mo below market
-Adjust the entire market down around roughly $150/mo.
The first new building(Chester Williams bldg) to open in a couple years just opened and while its nearly full only a few months after opening, it's had a ripple effect and basically stopped the rent increase that have been common in the past year and a half or so. In fact, several buildings now have unfilled vacancies this month whereas they had been 100% occupied most of the year.
I'll note that one owner has about 15-20% of the DTLA market(Barry Shy). But you cannot fix rents at a rate that the market will not bear. People need a place to live, but they don't have to live in your place. FWIW, Mr. Shy's rents are on the competitive side.
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San Jose, CA
It’s very easy to steal tenants from old buildings to new ones by offering same rent, better features and first month free. Consequently the older one have to drop rent.
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Well S.F and Berkeley you have rent control too.
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Seattle, WA
David Losh's website
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Mark D says
This pilot program is already tanking for the reasons you just outlined.
These groups pay too much, have high property managment expense, then sell at the first sign they will be allowed to.
The numbers work on paper, but the reality is different.
As some one said, it's been tried before.
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Los Angeles, CA
REpro says
Exactly my point.
More rentals on the market can in fact affect overall rents. What it depends on is where these "bulk sales" are occuring. If its only a couple per micro market, then theres gonna be no effect. If its 10-20 per micro market, theres going to be a decline in overall rental prices.
This is true even if the population in the micro market increases so long as there are more rentals available than people to fill them at whatever the equilibrium price point is.
If you speak to people who were landlords in LA in the mid 90's , by and large they will tell you that things were not good at that time. Even though home ownership declined at the time, there were simply more units available for rent than there were people who could afford them. That was post the last housing crash.
This time around, its a bit different. I believe its different at the moment for two reasons:
-A lot of people are living rent free in their homes. These homes are not measured at the moment because they have mortgages that are not being paid, but the banks will make no effort whatsoever to pursue payment or NOD. So they are just kinda in limbo and the mortgage holders have no reason to move or pay anything.
-A percentage of homes are simply kept empty, off the market. This is certainly shown in Zillows new feature where homes are foreclosed on but not on MLS. If even half those SFR and condos were put on the rental market, rents would drop significantly.
In other words, there is the same excess of inventory that existed after the early 90's housing market crash, but this time around inventory is being maintained as unavailable. This is keeping rents(amoungst other things) at an artificially inflated amount.
Depending on how many of these housing units are sold in bulk, its going to impact the rental market, as well as the housing re-sale market. I do agree that just this one sale will not impact things much, if at all. But the notion that "price fixing" will occur is ridiculous. Its been repeatedly proven here that you can't raise rents higher than the market will bear. Even with the current "shadow inventory" being withheld from the market, rents have a ceiling.
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Oakland, CA
We've been seeing this in Oakland for some time. The investors are coming in and buying large amounts of foreclosed homes and renting them out.
But they also tend to fix them up and the rents have gone up.
There aren't a lot of empty houses here. Foreclosured houses are mostly people who were living rent free. When the house is foreclosed they get kicked out and become renters. So there's no net increase in rental supply.
it's different if you're talking about places like Inland Empire where too many houses were built and bought by absentee landlord speculators. In those areas there are too many empty homes. Once previously empty houses come on the market as rentals rents will probably fall.
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dodgerfanjohn says
What percentage of homes fits this criteria? Foreclosed, vacant and not for sale?
In DTLA, Zillow shows me 8.
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Los Angeles, CA
zesta says
It depends on the micro market.
For DTLA, the issue is condos where mortgage/HOA is not being paid, but no action including NOD is being taken.
After all, where did all those current sales and pending short sales at Eastern Columbia building pop out from?
Are people still paying their $500-600k mortgages on all those units at Market Lofts? Recent short sales have been in the $350-400k range. Are people really stupid enough to not strategically default under these circumstances?
I have a feeling most realtors and the banks around here prefer we were blind and stupid.
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San Jose, CA
dodgerfanjohn says
Here is interesting exercise:
Pick your micro economic: town/borough with homogeneous salary. Go to Zillow and click on gradually increasing sizes of the houses and estimated prices. Pay attention on estimated rent. You will see at some point that estimated rent do not go up regardless of how expensive house is or how big in sq./ft. That where rent ceiling is for this area.
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Los Angeles, CA
REpro says
The final statement doesn't make any sense...ie it doesn't logically lead from the example you posted.
The reason is despite median or average income for the area, you'll have some sort of distribution of incomes with an unknown quantity of people 1 sigma out of normal, 2 sigmas out, etc on both sides.
Your example attempts to make the case that the rent ceiling for the area is the most a single person in that area can afford and that would be incorrect. Rent ceilings will vary for type of dwelling, average income, distribution of incomes from the average, etc.........
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robertoaribas says
Roberto, point 3 is interesting. Even War/Darrell with his $60/ft can't beat this, his 3k ft house would be $180k.
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Seattle, WA
David Losh's website
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There is a lot of talk about shadow inventory that is complete hooey. At one point there was something like 18 million housing units, and now I think it's like 7 million that gets quoted as being vacant, but it doesn't make any difference.
The big story was that apartment building permits were flat for the 10 years that builders threw up crap shacks and sold them for big money.
Well that home ownership rate is fine for the people who are stuck with houses, but the economy has changed.
There are more people who would rather rent, work, and save than those who want to be saddled with debt.
A house isn't a sure bet any more, and after prices receed after the election you'll see more people happy to move into newer apartment buildings, and ride out the economy.
Big builders have taken over the housing market here in Seattle. We see thousands of apartment buildings being finished, and lowering rents to attract renters. As the apartment rents go down the crap shacks are finding it harder to get quality renters.
Remember low life pays the most to live somewhere.
So what I see is that questionable areas are getting further run down, and newer buildings are eating the lunch of older buildings that don't keep up.
And the crap shacks are taking longer to rent, and the rates need to get in line with the condition.